First Interstate Bancorp of Los Angeles announced Monday that it has agreed to be acquired by First Bank System of Minneapolis for a record $10.3 billion, creating the nation’s first banking empire stretching from the Midwest to the Pacific.
The deal is the latest consolidation in the bank industry’s fight to cut costs and compete with less-regulated sectors of the financial-services industry.
If approved by shareholders and federal regulators, First Bank System’s offer to rescue First Interstate from a hostile takeover by California rival Wells Fargo & Co. will create the nation’s ninth-largest banking concern, with $92.4 billion in assets.
Analysts said they expect Wells Fargo to sweeten its $10.1 billion bid.
Wells Fargo Chairman Paul Hazen issued a statement saying, “We do not believe that First Interstate’s shareholders will settle for something less than what they would have obtained through a merger with Wells Fargo.”
He said his bank’s bid includes $700 million a year in savings and the possibility of a $40-a-share premium for stockholders.
But First Interstate has made up its mind to go ahead with First Bank System rather than Wells Fargo’s “riskier” offer, said First Interstate Chairman William Siart.
The acquisition would surpass the record $10 billion merger between Chase Manhattan and Chemical Bank, which agreed this summer to form the nation’s largest banking firm with assets of $297 billion.
On the New York Stock Exchange, First Bank fell $1 a share to $49.87, while First Interstate lost 87 cents to $126.87.
The new First Bank System would serve 462,000 customers in 21 states.
First Bank System officials said the two banks’ operations overlap only in Wyoming, Montana and Colorado, where First Interstate subsidiary Colorado National Bankshares is the state’s largest bank. First Interstate ranks No. 4 in Colorado.
First Bank System has operations in North and South Dakota, Wisconsin, Nebraska, Kansas, Illinois and Iowa in addition to Minnesota, Wyoming, Montana and Colorado. In Chicago, First Bank purchased Boulevard Bank on North Michigan Avenue in 1994, its only asset in the market.
First Interstate, California’s third-largest bank, operates banks in Texas, Arizona, New Mexico, Washington state, Oregon, Idaho, Utah, Nevada and Alaska.
First Interstate’s Siart, who will be president of the new First Interstate, said Monday that his bank thought Wells Fargo’s bid was not only riskier but would result in significant job losses in California.
First Bank System Chairman John Grundhofer, who will be chairman of the new bank, estimated $500 million in annual savings from the combination.
Savings include the possibility of laying off up to 6,000 employees nationwide. That is far less than the 12,000-plus employee layoff contemplated by the Chase-Chemical merger or major branch bank closings likely to arise from a First Interstate takeover by Wells Fargo.
While the combination of First Bank System and First Interstate won’t see savings from branch closings or employee layoffs, industry watchers agreed the deal should result in other substantial savings.
